www.melbourneminingclub.com
CVRD - The Global Seaborne Iron Ore Industry
Melbourne Mining Club8th June 2006, Melbourne - Australia
MINING LOGISTICS
VRD ENERGY
osé Carlos Martins – Executive Officer – Ferrous Minerals
Disclaimer
is presentation may contain statements that expressnagement’s expectations about future events or results rather thanorical facts. These forward-looking statements involve risks andertainties that could cause actual results to differ materially fromse projected in forward-looking statements, and CVRD cannot giveurance that such statements will prove correct. These risks andertainties include factors: relating to the Brazilian economy andurities markets, which exhibit volatility and can be adverselycted by developments in other countries; relating to the iron oreiness and its dependence on the global steel industry, which isical in nature; and relating to the highly competitive industries inch CVRD operates. For additional information on factors that couldse CVRD’s actual results to differ from expectations reflected in
ward looking statements please see CVRD’s reports filed with the
Natural vocation for mining activities
Mineral Resources presentin both countries
Importance of mining activityfor the country
Australia-Brazil
Iron Ore
Bauxite
Copper
Nickel
Gold
Uranium
Brazil: Mining sector contribution to total exports in 2005: 6.8% Mining* as a percentage of GDP in 2005: 4.3%Population 180 million
Australia: Mining sector contribution to total exports in 2005: 39.5% Mining and primary products as percentage of GDP in 2005: 8.3%Population 25 million
And, in times of World Cup, we must remember another similarity…
the colors of the uniforms!!
Australia-Brazil similarities
Brazil Australia
Coal
Iron Ore and Pellets
Logistics
Bauxite, Alumina and Aluminum
Non Ferrous
and Nickel
Non-Ferrous Minerals:
Copper, Gold and Nickel
Industrial Industrial Minerals:
Kaolin and Potash
CVRD
Manganese and
Ferro-alloys
CVRD’s main activities
Iron ore and pellets
255.2 million tons
Bauxite1.9 million
tons
Manganese Manganese ore
907 thousand tons
Kaolin1.2 million tons
Fe-alloys529 thousand
tons
General cargo26.9 billions of
tkus
Regardless diversification, iron ore is still CVRD’s
Potash 640 thousand
tons
Copper concentrate
398 thousand tons
Alumina 1.8 Alumina 1.8 million tons;
aluminum447 Ktons
Ferrous MineralsVRD Sales in 2005
7.1766.540
5.7615.034
3.9723.7223.289
2.912
1.587 1.686 1.780 1.825 1.890 2.000 2.130 2.431
Sixteen consecutive quarters of adjusted EBITDA growth
LTM* adjusted EBITDAUS$ billion
Ferrous minerals78.8%
on ferrous minerals
4.3%
uminum12.2%
Logistics4.7%
Composition1Q06
CAGR 02-05 = 54.3%
CVRD Cash Generation
A Broad Presence Around the Globe
Angola
MongoliaUlambaata
ar
Chile
Peru
Gabon
RDASIA Shangai
JapanRDASIA TokyoNew York
Rio Doce America-RDA
Los AngelesFontana
Steel Industries - CSI
NorwayRio Doce Manganese Norway - RDMN
FranceRio Doce Manganese Europe - RDME
SwitzerlandCVRD International
Mozambique
Argentina
Venezuela
China
South Africa Australia
Congo
Business
gy
mercial representatives
anese
rnia Steel Industries
IndiaNew Delhi
CVRD COMPETITIVENESS
FLEXIBILITY &EFFICIENCY
PRODUCT QUALITY
SIZE OF RESOURCES
INVESTMENTCAPACITY
THE FOUR PILLARS OF RELIABILITY
D Iron Ore Reserves & Production
D has the largest reserves and resource base in the industry, providing an excellent platform for sustained growth.
5 mines
Northern System
2.1 Bi
13 mines 4.6 Bi
Southern System
6 mines 1.2 BiMBR System
Reserves1
(Tons)
50 Mi
Production2005
73 Mi
111 Mi
8 0 Bi 234 MiTOTAL CVRD2
can produce and deliver high quality iron ore products, ing on value-in-use to customers
ron Ore and Pellets - Quality
67.40
66.00
63.58
63.41
58.41
57.50
58.79
0.033
0.026
0.072
0.071
0.04
0.05
0.042
1.60
5.32
6.34
6.29
5.80
7.45
Iron Content (%) Impurities (%)
Fe Content Phosphorus Content Silica + Alumina Content
Specifications of CVRD and Australian Fines
4.35
66.50 0.040 2.90
D iron ore production grew at 15% per annum from 2001 to With the new investments under implementation, it is cted to reach 300 Mtpy* in 2007.
300.0
264.4
233.8
211.3
188.3
167.8
133.8 001
002
003
004
005
06E
07E
tpy
RD - Iron Ore Production Growth
nthly Chinese Iron Ore Imports
Chinese iron ore imports
Chinese iron ore imports are growing at a very fast pace.Growth in the LTM* as of April ´06: 30% YoY!!
Jan-Apr 06 = 108Mt
owth in steel production is expected to continue in the coming
721 698 722 747 786 780 855 880
152 182 222280 349
475 525
127
´00 ´01 ´02 ´03 ´04 ´05 ´08f ´10f
1,330
848 850904
9691,066
CAGR 05-10
+4.5%
+8.5%
+2.4%
hi % f ld t l d ti 26% 31% 36%
t e d
Steel Production1,405
1,129
orld & China Steel Production
+11.2%
384 360 372 389 400 425 435
92 112148
203270
400460
389
70
´00 ´01 ´02 ´03 ´04 ´05 '08f '10f
454 452
670
484537
603
CAGR 05-10
+5.9%
+1.7%
d
of
d
a
895825
nd is expected to continue its strong growth and the seaborne volume shall be determined by supply conditions.
Iron Ore Seaborne Trade
Ore Seaborne Trade
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 E E E E E0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 E E E E E
1Q06 = 10.2%
China Economic Growth
Urbanization effects
Urbanization effects
Housing
Infrastructure
Consumer behavior
Housing
Infrastructure
Consumer behavior
China Economic Growth
China Economic growth
eel Industry Global Trends
mic Development and Steel Consumption Growth will continue to be mainly Asian driven
4.0 billion
Population
ion
ion
12 trillion
GDP (US$)
lion
US$)
794 million
Steel Prod (t)
llion
rod (t)
608 million
Steel consumption (t)sumption (t)
?
Potential Growth for steel
Slow growth Fast growth37%
72%
29%
39%
63%
28%
71%
61%
Steel Consumption
bal Economic Expansion
United States
China
´04 ´05 ´06 ´075.3 4.8 4.9 4.7
WORLD TOTAL
Brazil
´04 ´05 ´06 07 4.2 3.5 3.4
3.3
Western Europe
India
Russia
ese and Indian GDP growth are detaching from worldge.
´04 ´05 ´06 ´07 2.1 1.3 2.0
1.9
´04 ´05 ´06 ´07 7.2 6.4 6.0
5.8
´04 ´05 ´06 ´07 10.1 9.9 9.5 9.0
´04 ´05 ´06 ´07 8.1 8.3 7.3
7.0´04 ´05 ´06
´07 4.9 2.3 3.5
3.5
Mt
Ore Seaborne Trade Forecast by on
Asia (Ex. China)
North America
China
´05 ´08f ´10f 670 825 895 +225
TOTAL
´05 ´08 ´10 270 400 460
+190
South America
´05 ´08 ´10 6 7 9
+3
´05 ´08 ´10 21 24 24
+3
´05 ´08 ´10 213 216 220
+7
Western Europe
´05 ´08 ´10 128 132 132
+4
Middle East / Africa´05 ´08 ´10 20 33 36
+16
E. Europe / CIS
´05 ´08 ´10 12 13 14
+2
orne iron ore trade to grow > 5% pa through 2010.
’s Iron Ore sales along 2005 reached 255* Mta. Europe is atural and biggest market but Asia accounts for 53% of our rts.
VRD Sales Breakdown 2005
Middle East3%
South Korea4% USA
2%
Others9%
Japan10%
China21%
Domestic23%
Europe28%
tails of the 2 most advanced projects:
Ceará Steel with Dong Kuk Korea
Capacity: 1.5 Mtpy CVRD Capex: US$ 25 million DR pellets consumption: 2.5 Mtpy Estimated start-up: 2009
CSA Atlantic Steel with Thyssen-Krupp Capacity: 4.4 Mtpy CVRD Capex: US$ 200 million Iron ore & pellets consumption: 7.1 Mtpy
Steel - Joint Ventures
ering iron ore consumption in Brazil by attracting steelmaking ects and taking advantage of the trend towards geographical
reallocation of global steel capacity.
r world-class assets and the efficient logistics infrastructure provide important competitive advantages for CVRD.
Total Capacity Start-upinvestment increaseUS$ million Mtpy
ajás 85 Mtpy 296 15 2006ajás 100 Mtpy 366 15 2007
ucutu 856 24¹ 2006/07bira 75 3 2007endão 100 14² 2007
brica 144 5 2007
on Ore Expansion Pipeline
mportant iron ore projects to reach 300 Mtpy in 7:
Global consumption of pellets to trend sharply higher:s productivity improvements, environmental restrictions on ring, decreasing lump ore supply, relevant growth on new DRI
capacities (mainly in Asia and Middle East).
Total Capacity Start-upinvestment increaseUS$ million Mtpy
biritos (Minas Gerais) 759 7.0 2008
arão VIII1 516 7.0 2008
marco2 1,183 7.6 2008
llets Expansion Pipeline
are developing 3 new pellet plants:
Conclusion
eaborne iron ore demand will continue to show strong owth at a higher rate than steel. The demand vspply curve will remain tight in the next years in spite the undergoing expansions.
ased on its competitive advantages of high quality, rge reserves, operational efficiency & flexibility and rong cash flow, CVRD is well positioned to develop
mportant expansion projects in order to support the owing steel industry.
emand for pellets will grow substantially. CVRD is ry well positioned to increase its leadership in this gment with new plants in Brazil and abroad taking vantage of high quality and low cost natural pellet
Conclusion
VRD believes Brazil, based on CVRD’s iron ore, perior logistics systems and deep water sea ports is e most suitable location for steel production in the estern World. CVRD will support customers initiatives locate capacity to Brazil.
VRD believes the benchmark price system in place for ecades is the best alternative for price fixing between e most interested parts on it: customer and ppliers, without interference of other agents and not lated interests.
VRD, as a diversified mining company, has been vesting heavily also in other steel related products an iron ore to become a one stop shop to the global
l i d t (I O P ll t M O
Conclusion
VRD believes Brazil, based on CVRD’s iron ore, perior logistics systems and deep water sea ports is e most suitable location for steel production in the estern World. CVRD will support customers initiatives locate capacity to Brazil.
VRD believes the benchmark price system in place for ecades is the best alternative for price fixing between e most interested parts on it: customer and ppliers, without interference of other agents and not lated interests.
VRD, as a diversified mining company, has been vesting heavily also in other steel related products an iron ore to become a one stop shop to the global
l i d t (I O P ll t M O